Property Taxes: Whose Money Is In The Bucket?

I’ve had a few questions about several stories I’ve written about property taxes, and I would like to share with you my bucket analogy, which simplifies some of the complex things that determine a person’s property taxes.

Imagine a bucket. This bucket represents a single local taxing entity’s levy for a single year, payable the following year–for example, Stutsman County.

1. The governing body of that taxing entity determines the total amount of taxes to levy. That means Stutsman County sets the size of its own bucket. The state, though, usually has some limits on how big that bucket can be.

2. Every taxing entity has its own bucket.

When you pay property taxes, part of your money goes into the county’s bucket. But part of it goes into the city’s bucket, if you live in a city, or the township’s bucket, if you don’t, and part of it goes into the school district’s bucket. The county collects the property taxes for all these entities, but it doesn’t keep them, nor does it have any control over the size of anybody else’s buckets.

Now many factors help determine what goes into the buckets. I’ve written about a few of them. Below I’m going to use Stutsman County’s bucket as an example, but it’s not the only bucket involved, remember! And these three items are all specific to North Dakota.

1. The soils assessment. That was mandated by the state of North Dakota, and affects property valuation. Generally, the idea is to ensure that all land with the same type of soil that is used the same way is valued the same.

This will affect how much property owner A puts into the bucket compared to property owner B. If A had a lot of flood damage and couldn’t plant for several years, or if B just has better soil, B may end up putting more money into the bucket next year than A, even if they have the exact same amount of property.

That does not necessarily mean that B’s taxes will go up as compared with last year, however, because there are other factors. If the County Commission opts to levy less taxes, the county’s bucket will shrink, and require less money to fill it up. In fact, every taxing entity could levy a smaller tax and put out a smaller bucket. B will still pay more than A, but if the buckets shrink enough, B’s taxes could still be lower than they were last year.

2. The change in the statutory cap rate. This is part of how the state of North Dakota determines crop land values for the purposes of taxation. It’s a long mathematical formula.

Essentially, however, it helps determine how ag land is valued. In previous years, the statutory cap rate was held at a certain level by the Legislature, which kept ag land values lower. This year the Legislature did not vote to do that. (I don’t know how it reached that decision.)

This means that ag land values are going up 21 percent.

It still doesn’t necessarily mean that either A’s or B’s taxes will go up as compared with last year. Remember, the taxing entities still could shrink the size of their buckets enough to offset that 21 percent.

It does mean, however, that both A and B will be putting proportionally more into this bucket than last year as compared with C, who owns only residential land, and D, who only owns a business.

Do note that, given the size of the increase due to this issue, it is likely that A’s and B’s taxes will go up.

3. Another part of the complex mathematical formula for ag land values is determined by actual cropland landowner returns.

To keep this number from being volatile, and swinging wildly up during good years and wildly down during bad ones, it was decided that this number should be an average. So the formula takes the last ten years of cropland landowner returns, drops the highest year and the lowest year, and then averages them out.

Cropland returns have more than doubled since 2001, though, and they have increased nearly every year since then (except in 2004). So between 2011 and 2012’s formulas, a low year was dropped from the list of numbers to average and a high year was added. Even dropping the highest number and the lowest number meant there was an overall increase.

More math would be involved to show the precise effect of this, but essentially, that too affected the values of ag land relative to residential and commercial/business land, though not as much as factor 2 above.

This will have A and B putting proportionally more into the bucket compared with C and D than they did last year.

But it still doesn’t mean A and B’s taxes have gone up compared with last year, because the county still sets the size of its bucket, as does every other taxing entity.

4. Here’s one I haven’t written about. Stutsman County’s population decreased slightly between 2000 and 2010, but I’m not sure whether it changed during the past year.

If E and F bought and developed property in Stutsman County, they will have to help fill up the bucket. This means that A, B, C and D could pay proportionally less than they had the year before. However, they might not pay less taxes, because the county still sets the size of its bucket, as does every other taxing entity.

(Note: Just in case you’re wondering about the bucket picture above, it’s an internet meme. In other words, it became inexplicably popular for no discernible reason and a lot of people have seen it. If I’d wanted to mix the memes, I could have titled it something like “Yo dawg, I used to like buckets like you, but then I took an arrow in the knee.” But that might be silly.)